Gold prices fell sharply overnight, dropping nearly 4%, against a backdrop of the Federal Reserve holding interest rates steady and escalating geopolitical conflicts.
On the evening of March 18, spot gold in London broke below the $4,900 mark, at one point tumbling nearly 4% during the session to a low around $4,803 per ounce. By the time of writing, prices had rebounded somewhat, trading at $4,841.795 per ounce, up 0.59%. COMEX gold was quoted at $4,840.1 per ounce, down 1.15%.
Regarding market news, the U.S. Federal Reserve announced on March 18 that it would maintain the target range for the federal funds rate between 3.5% and 3.75%. Separately, in the early hours of March 19, Iran's Islamic Revolutionary Guard Corps issued an emergency statement declaring it had launched a large-scale missile attack on U.S.-related oil and energy facilities in the region. This action was described as a direct and proportionate retaliation for an attack on Iranian energy infrastructure earlier on March 18.
Recently, spot gold has been fluctuating weakly near the $5,000 level. Analysts at JPMorgan characterize the current situation as a "collision between geopolitical concerns and a strong rebound in the U.S. dollar," a rare scenario making short-term gold price predictions exceptionally difficult. However, JPMorgan maintains a strong bullish outlook for gold, forecasting an average price of $5,100 per ounce for the first quarter of 2026, rising to $5,530 in the second quarter, reaching $5,900 in the third quarter, and climbing further to $6,300 in the fourth quarter.
Why has gold weakened recently? Market views suggest that the geopolitical safe-haven support from the Iran conflict is strongly counterbalanced by a strengthening U.S. dollar and expectations of Fed tightening, creating a rare and intense battle between bullish and bearish forces in the gold market.
Although gold is seen as a hedge against inflation and uncertainty, elevated oil prices exacerbate inflationary pressures, dampening its appeal. High oil prices increase the cost of holding physical gold while also boosting the yields on interest-bearing assets.
In a global precious metals commentary report released on March 17, UBS strategist Joni Teves pointed out that the current pressure on gold from high real interest rates and a strong dollar constitutes a short-term disturbance, but the pressure is real. The market is currently more focused on the chain of "rising oil prices -> rising inflation -> Fed maintaining tight policy" rather than the path of "oil price shock -> economic slowdown -> policy pivot." This singular narrative has significantly weakened gold's macro-hedging properties in the short term.
Bob Haberkorn, senior strategist at RJO Futures, noted, "Rising oil prices will push up inflation. If inflation rises, central banks will be far less willing to cut rates than they were six months ago, which is clearly negative for gold prices."
A wave of market de-risking and broad selling has been a direct trigger for gold's recent weakness. Analysis from JPMorgan shows that when the VIX index is high and climbing, investors facing pressures such as margin calls and portfolio rebalancing are forced to raise liquidity, leading to selling of highly liquid assets like gold. Global gold ETF holdings have also seen significant outflows. Furthermore, the geopolitical risk premium from the Iran conflict exhibited a typical "buy the rumor, sell the fact" pattern, failing to provide sustained support for gold prices after the conflict erupted, with the short-term failure of its safe-haven attributes exacerbating the adjustment.
Overheated valuations and mean reversion pressure cannot be ignored either. Mike McGlone, a Bloomberg commodity strategist, warned that gold's rally is evolving from a store of value into a speculative bet, with multiple technical indicators suggesting this bull market may be nearing its end. Data shows that by the end of February, the premium of the gold price over its 60-month moving average had risen to its highest level since 1980, while its 180-day volatility reached 2.4 times that of the S&P 500, a 20-year high. McGlone believes this price level represents "the best a bull market can achieve." Additionally, at the end of February, the gold-to-WTI crude oil price ratio rose to 79, a level historically surpassed only during the extreme event of April 2020 when oil prices turned negative. As of March 13, this ratio remained high at 51, compared to its 100-year historical average and mode both near 20. McGlone indicated that the gold-to-WTI crude ratio nearing historic highs could be a sign of a peak in gold prices, and the next major move in commodity markets might be a mean reversion in gold prices.
Long-term outlook remains positive for gold Despite short-term pressure, most market views still believe the medium to long-term trend for gold is likely to be positive.
The Federal Reserve's policy stance and Chairman Powell's rhetoric remain the core indicators for gold's short-term direction. The Fed's decision to hold rates steady was expected. More critically, Chairman Powell acknowledged during the press conference that the uncertainty from the Iran war made the policy path "highly uncertain," a statement interpreted by the market as a clear hawkish signal, significantly delaying expectations for rate cuts. Consequently, spot gold's decline widened noticeably.
The longer-term bullish logic lies in the persistence of the energy shock. JPMorgan believes that if the blockage of the Strait of Hormuz continues, the more substantial the economic impact of energy disruptions, the more likely gold's macro backdrop is to "shift rapidly and significantly to bullish." If oil prices rise substantially and sustainably to $120 per barrel or higher, economic downside risks would non-linearly amplify, and the Fed is expected to pivot towards easing due to employment objectives, which would significantly amplify gold's upward momentum.
UBS strategist Joni Teves also believes that the normalization of oil flows through the Strait of Hormuz is a key variable affecting gold's trajectory. Teves points out that the core factors supporting the gold bull market remain intact. Unlike previous gold rallies reliant on inflation or dollar cycles, the core drivers this time are the long-term nature of global uncertainty, the declining hedging efficiency of traditional stock-bond portfolios, and rising investor demand for "real assets." Gold is no longer just a hedge but is gradually becoming part of strategic asset allocation.
Teves stated that the trend of investors continuously increasing allocations has not reversed. The real impact of geopolitical conflicts on gold lies in strengthening investors' long-term willingness to allocate to gold, pushing its weight higher in global asset allocation. Gold is expected to set new record highs this year, with current pressures being short-term disturbances, and any pullbacks presenting buying opportunities.
Jamie Dutta, market analyst at Nemo.money, said, "Long-term drivers, such as central bank gold purchases, stagflation risks, and the need for asset allocation diversification, persist. This suggests gold prices could still move higher by the end of 2026."
JPMorgan emphasized that the longer energy disruptions last and the more substantial their impact on inflation and economic growth, the more likely gold's macro backdrop is to "shift rapidly and significantly to bullish," a trend that would be further amplified by a subsequent Fed pivot to easing.
JPMorgan maintains its strong bullish outlook for gold, forecasting an average price of $5,100 per ounce for the first quarter of 2026, rising to $5,530 in the second quarter, reaching $5,900 in the third quarter, and climbing further to $6,300 in the fourth quarter.